Dana Petroleum lifted by second Nile Delta discovery

Dana Petroleum, the oil and gas producer, has made a second discovery in the Nile Delta in Egypt, which it says reinforces the attractions of other prospects in the area.

Dana and its partner GDF Suez have drilled two wells in the West El Burullus concession and made two discoveries. It said there were numerous other drilling sites in the area, both shallow and deeper prospects. Analyst Phil Corbett at house broker RBS Hoare Govett said:

On a risked basis, we are carrying around 14p a share for both discoveries, rising to 24p on an unrisked basis. There should be some scope to derisk on the back of this result, so the direct impact feels like a modest 5-10p.

However, Dana believes that the result reinforces the attractiveness of deeper intervals on the licence, one of which is home to the Bamboo prospect which will be drilled next (rig should be on location shortly and well should take 90 days). We are including a risked 37p (rising to 121p on an unrisked basis) in our Dana valuations for Bamboo, and the market could use the news from Papyrus this morning to derisk some of this upside.

Overall, it feels like this announcement has a 10-20p impact on valuations, although given Dana has underperformed the wider sector, this positive drilling result could have a greater impact on the share price.

At the moment the first valuation looks spot on, with the company's shares 20p higher at £10.22. Elsewhere Nick Copeman at Oriel Securities said:

Whilst the discovery is likely to be of modest value directly it does now appear likely that sufficient gas exists in the block to justify a development. We retain our add recommendation and note that Dana's shares are standing at a discount to our risked net asset value whilst Dana has an active near term drilling programme.